WHAT IS A DIRECTOR SERVICE AGREEMENT?

A Director Service Agreement is a legally binding document that sets out the obligations, responsibilities and rights of the director of the company. This document is important because the director usually has a lot of responsibilities and exposure to confidential information. Without a detailed Director Service Agreement it would be difficult at best to maintain order and to protect the confidentiality of the company’s trade secrets, business practices and other information that should not be disseminated to the public.

WHAT’S INCLUDED IN A DIRECTOR SERVICE AGREEMENT

The agreement should include the following:

• A detailed list of the duties and responsibilities of the director especially since in many small businesses the director may serve in two positions. There needs to a clear demarcation as to what constitutes director functions and responsibilities and what does not.

• The agreement should provide a clause that sets out and explains the amount of and manner in which the director will be compensated.

• The agreement should include confidentiality restrictions that should be adhered to while the director is employed and when he or she leaves the company’s employment.

• The agreement should also contain instructions as to how to proceed with business in the event that the director dies, becomes incapacitated or is removed from the company.

• The agreement also should specify the method of resolution of disputes as well as the proper jurisdiction for the arbitration or court hearing as well as the proper venue in which the disputes can be brought.

WHERE ARE DIRECTOR SERVICE AGREEMENTS USED?

Directors service agreements should form a vital strategy for any business. Directors are entrusted with the running of a business which provides access to various trade secrets, methodologies and other information (customers, suppliers, marketing, strategy, contacts etc.) pertaining to the business.

Director service agreements document clearly the role of the director in the business as well as providing provisions as to what happens within certain circumstances. Each agreement should contain convents or clauses which provide for items such as working with competitors, notice of termination, confidentiality, shareholdings, employment status, information ownership etc.

To protect a business it is important to have a well-documented directors service agreement in place.